At the time of writing, house price growth has rebounded in February with 0.3% growth which ‘more than erased’ the small decline experienced in January. Prices in February actually increased by 6.9% annually, compared to 6.4% at the start of the year. So, what is the outlook for UK property market?
Economists had been forecasting a fall in house prices this year, some by about 2%, due to believing prices had peaked in December 2020. But now that top lenders like Nationwide and Halifax have released their figures for the last month, this seems too downbeat and has prompted a rethink.
But there are a lot more factors in play that drive house price growth. The UK currently has cheap debt as a result of very low interest rates which offers buyers a ‘discount’ and due to the pandemic, there has been a shift in housing preferences which might also be responsible for increased demand. A desire for more spacious living in less densely populated areas has created demand too. Chancellor Rishi Sunak’s recent announcement in the Budget that the stamp duty holiday has been extended for a further three months will continue to have a big impact and speed purchases along.
Whilst the stamp duty extension has no doubt fuelled house moves, the property market had already exploded back to life after the first lockdown so there is concern that this has created an artificial bubble that cannot be sustained. It has also inhibited many first-time buyers getting onto the property ladder. There is call for the tax break to be made permanent as research has shown that keeping the stamp duty at its current threshold of £500,000 could lead to a fiscal surplus for the UK treasury of £139 million a year. This is the equivalent of 37,000 more property transactions each year. We wrote about the impact of the stamp duty in a previous blog, click here to read about how to reap the benefits.
We predict that demand will continue to stay high, playing its part in house price growth as it has done since the stamp duty tax was frozen last year. More people will choose to move to a larger house rather than extend their existing one to make the most of the saving. In times of uncertainty, and the last 12 months has certainly been that in spades, people want to invest their money in a stable asset with low volatility. The market has already indicated it’s ready to enjoy a second wind and we can’t see it slowing down any time soon.